SAN MIGUEL CORPORATION v. BARTOLOME PUZON, JR. G.R. No.

167567 |
22 September 2010

Completion and Delivery

DOCTRINE: When a check is delivered, the intent/purpose of the act of

delivery determines whether the same is given effect or given merely as a
security. The first situation transfers ownership to the payee, while the latter
does not.

FACTS:

• Puzon was a dealer of San Miguel beer products, buying the same
on credit.

• To ensure payment, and as a business practice, San Miguel

required Puzon to issue postdated checks equivalent to the value of the
products purchased on credit.

• The checks are then returned after full payment of the value of the
transaction.

• Following this arrangement, Puzon purchased products to which he

issued two checks to cover the transaction.

• A month later, Puzon visited San Miguel’s Sales Office to reconcile

his account with the latter. Puzon allegedly requested to see one of the
checks. When he got hold of both checks (attached to a bond paper),
he immediately left the office, bringing the check with him.

• San Miguel then sent a demand letter asking for the checks back.
After being ignored, San Miguel filed a criminal complaint for theft against
Puzon.

• DOJ dismissed the case on the ground that the non-payment of a

debt cannot give rise to a criminal case. It also established that the
relationship between the two is one of creditor-debtor.

• CA found that the postdated checks issued were merely as a

security of his purchases and not intended to be encashed. It concluded
that SMC did not acquire ownership of the checks.

• San Miguel then argued that the checks’ ownership were

transferred to it because they were issued in payment of the purchases
and not merely for security.

ISSUE: Whether or not the delivery of the checks to SMC vested it

ownership over the checks.

Ruling:
 No, the delivery of the check did not make SMC the owner thereof.
The check was not given as payment, there being no intent to give effect
to the instrument.

• “Delivery” as a term used in Sec. 12 means that the party delivering

did so for the purpose of giving effect thereto. Otherwise, it cannot be
said that there has been delivery of the negotiable instrument. Once
there is delivery, the person to whom the instrument is delivered gets the
title to the instrument completely and irrevocably. The purpose of the
delivery will determine if ownership is transferred:

• (1) If the purpose is the give effect to the instrument, title or

ownership transfers upon delivery.

• (2) If the intent to give effect is missing, ownership is retained by the

person who delivered.

• The check was only meant to cover the transactions in the

meantime, and Puzon was to pay for the transaction by some other
means other than the check.
EQUITABLE BANKING CORPORATION, INC. v. SPECIAL STEEL PRODUCTS and
AUGUSTO L. PRADO G.R. No. 175350 | 13 June 2012

Liabilities of Acceptor

DOCTRINE:

Banks have the duty to scrutinize the checks deposited with it, for a
determination of their genuineness and regularity. The law holds banks to a high
standard because banks hold themselves out to the public as experts in the
field.

The nature of crossed checks should place a bank on notice that it should
exercise more caution or expend more than a cursory inquiry, to ascertain
whether the payee on the check has authorized the holder to deposit the same
in a different account

FACTS:

• Special Steel Products (SSP) sells steel products. International Copra

Export Corp. (Interco) is it’s regular customer. Jose Uy is Interco’s
employee in charge of purchasing department, and son-in-law of
Interco’s majority stockholder.

• In 1991, SSP sold welding electrodes to Interco. Corresponding Sales

Invoices were issued for the transactions

• In payment for the welding electrodes, Interco issued 3 Equitable

checks payable to the order of SSP. Each check was crossed with the
notation “account payee only.”

• The case records disclose that Uy presented each crossed check to

Equitable, claiming that he had good title over them. The records do not
identify the signatory for the checks, nor explain how Uy came into
possession of the checks.

• Uy demanded the deposit of the checks to his personal accounts

with Equitable, which was allowed by Equitable on the assumption that Uy
– as the son-in-law of the majority stockholder, was acting pursuant to
Interco’s orders. Equitable also relied on his status as a valued client.

• SSP then reminded Interco of the unpaid welding electrodes. Interco

replied saying it already issued 3 checks payable to SSP.

• After Interco found out about Uy’s scheme, it issued 3 more checks
covering the payment but only some of the interest amount, it not being
the cause of the delay.

• SSP then filed a complaint for damages and writ of preliminary

attachment against Uy and Equitable alleging negligence on Equitable’s
part when they ignored the restrictive nature of the checks and the
subsequent depositing of the amount in Uy’s account.
• Equitable moved to dismiss for lack of cause of action, maintaining
that, since Equitable and SSP did not enter into any contract, the former
cannot be liable for actual damages. Equitable further argued that it is
not liable because it accepted the 3 crossed checks in good faith. o Due
to Uy’s close relations with the drawer of the checks, it had basis to
assume that the drawer authorized Uy to countermand the original order.

• The RTC ruled that the crossed checks belonged solely to the payee
named therein, SSPI. Since SSPI did not authorize anyone to receive
payment in its behalf, Uy clearly had no title to the checks and Equitable
had no right to accept the said checks from Uy. o Equitable was
negligent in permitting Uy to deposit the checks in his account without
verifying Uy’s right to endorse the crossed checks.

• It reiterated that banks have the duty to scrutinize the checks

deposited with it, for a determination of their genuineness and regularity.
The law holds banks to a high standard because banks hold themselves
out to the public as experts in the field.

ISSUE: Whether or not Equitable is grossly negligent when it allowed Uy’s

demands in having the checks deposited to his personal account?

HELD:

Yes, banks have the duty to scrutinize the checks deposited with it, for a
determination of their genuineness and regularity. The law holds banks to
a high standard because banks hold themselves out to the public as
experts in the field.

• • The checks that Interco issued in favor of SSP were all crossed,
made payable to SSP’s order, and contained the notation “account
payee only.” This creates a reasonable expectation that the payee alone
would receive the proceeds of the checks and that diversion of the
checks would be averted. This expectation arises from the accepted
banking practice that crossed checks are intended for deposit in the
named payee’s account only and no other.

• • At the very least, the nature of crossed checks should place a

bank on notice that it should exercise more caution or expend more than
a cursory inquiry, to ascertain whether the payee on the check has
authorized the holder to deposit the same in a different account.

• • Since the banking business is impressed with public interest, the

trust and confidence of the public in it is of paramount importance.
Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are required of it.”
(Patrimonio v. Gutierrez, G.R. No. 187769, [June 4, 2014])

Facts:
The petitioner and the respondent Napoleon
Gutierrez (Gutierrez) entered into a business venture under the name of
Slam Dunk Corporation (Slum Dunk)
In the course of their business, the petitioner pre-signed several
checks to answer for the expenses of Slam Dunk. Although signed, these
checks had no payee's name, date or amount. The blank checks were
entrusted to Gutierrez with the specific instruction not to fill them out
without previous notification to and approval by the petitioner.
In the middle of 1993, without the petitioner's knowledge and
consent, Gutierrez went to Marasigan (the petitioner's former teammate),
to secure a loan in the amount of P200,000.00 on the excuse that the
petitioner needed the money for the construction of his house.
Marasigan acceded to Gutierrez' request and gave him P200,000.00
sometime in February 1994. Gutierrez simultaneously delivered to
Marasigan one of the blank checks the petitioner pre-signed with Pilipinas
Bank, Greenhills Branch, Check No. 21001764 with the blank portions filled
out with the words "Cash" "Two Hundred Thousand Pesos Only", and the
amount of "P200,000.00".
On May 24, 1994, Marasigan deposited the check but it was
dishonored for the reason "ACCOUNT CLOSED." It was later revealed that
petitioner's account with the bank had been closed since May 28, 1993.

ISSUES:
1. Whether respondent Gutierrez has completely filled out
the subject check strictly under the authority given by the
petitioner
|||
Ruling

1. No, applicable rule is Sec. 14 of Negotiable Instruments law. While

Gutierrez here had prima facie authority to complete the check,
such prima facie authority does not extend to its use (i.e.,
subsequent transfer or negotiation) once the check is completed.
Only the authority to complete the check is presumed.

Gutierrez was only authorized to use the check for business

expenses; thus, he exceeded the authority when he used the check
to pay the loan he supposedly contracted for the construction of
petitioner's house. This is a clear violation of the petitioner's
instruction to use the checks for the expenses of Slam Dunk. It
cannot therefore be validly concluded that the check was
completed strictly in accordance with the authority given by the
petitioner.
Metropolitan Bank and Trust Co. v. Chiok, G.R. Nos. 172652, 175302 &
175394, [November 6, 2014])

What is a Cashier’s Check and Manager’s Check? (2015 Bar)

The legal effects of a manager's check and a cashier's check are

the same. A manager's check, like a cashier's check, is an order of the
bank to pay, drawn upon itself, committing in effect its total resources,
integrity, and honor behind its issuance. By its peculiar character and
general use in commerce, a manager's check or a cashier's check is
regarded substantially to be as good as the money it represents.

It is deemed pre-accepted by the bank from the moment of

issuance. Thus good as cash
(Hongkong & Shanghai Banking Corp. Ltd.-Phil. Branch v. Commissioner of
Internal Revenue, G.R. Nos. 166018 & 167728, [June 4, 2014])

Facts:

HSBC's investor-clients maintain Philippine peso and/or foreign

currency accounts, which are managed by HSBC through instructions
given through electronic messages. The said instructions are standard
forms known in the banking industry as SWIFT, or "Society for Worldwide
Interbank Financial Telecommunication." In purchasing shares of stock
and other investment in securities, the investor-clients would send
electronic messages from abroad instructing HSBC to debit their local or
foreign currency accounts and to pay the purchase price therefor upon
receipt of the securities

Are electronic messages considered as bills of exchange?

The electronic messages received by HSBC from its investor-clients

abroad instructing the former to debit the latter's local and foreign
currency accounts and to pay the purchase price of shares of stock or
investment in securities do not properly qualify as either presentment for
acceptance or presentment for payment.|||

The electronic messages are not signed by the investor-clients as

supposed drawers of a bill of exchange; they do not contain an
unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-clients;
and, they are not payable to order or bearer but to a specifically
designated third party. Thus, the electronic messages are not bills of
exchange as they do not comply with the requisites of negotiability.
||| (Areza v. Express Savings Bank,G.R. No. 176697, [September 10, 2014])

Facts:
Petitioners Cesar V. Areza and Lolita B. Areza maintained two
bank deposits with respondent Express Savings Bank's Biñan branch.
They were engaged in the business of "buy and sell" of brand new
and second-hand motor vehicles. On 2 May 2000, they received an
order from a certain Gerry Mambuay (Mambuay) for the purchase of a
second-hand Mitsubishi Pajero and a brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine
Veterans Affairs Office (PVAO) checks payable to different payees and
drawn against the Philippine Veterans Bank (drawee), each valued at
Two Hundred Thousand Pesos (P200,000.00) for a total of One Million
Eight Hundred Thousand Pesos (P1,800,000.00).
Such checks were then subsequently deposited to Petitioner’s
bank accounts and cleared by the Drawee. However, it was later
found out that such checks where already materially altered prior to it
clearance, and dishonored by Drawee later, which resulted into
Express savings bank debiting the amount of the dishonored check
from petitioner’s accounts.

Issue:
When the drawee accepted/cleared the check, is it liable according to
the altered tenor of acceptance based on Sec. 63 of NIL(Negotiable
Instruments Law) or according to its original tenor based on Sec. 124 of the NIL?

Ruling:

Liable according to original tenor only despite tenor of acceptance.

On one hand, Sec. 63 of the NIL provides that a drawee that accepts an
instrument engages that he will pay it according to the tenor of his
acceptance. On the other hand, Sec. 124 of the NIL provides that a
material alteration avoids an instrument except as against an assenting
party and subsequent indorsers, but a holder in due course may enforce
payment according to its original tenor.

Thus, when the drawee bank pays a materially altered check, it

violates the terms of the check, as well as its duty to charge its client's
account only for bona fide disbursements he had made. If the drawee
did not pay according to the original tenor of the instrument, as directed
by the drawer, then it has no right to claim reimbursement from the
drawer, much less, the right to deduct the erroneous payment it made
from the drawer's account which it was expected to treat with utmost
fidelity.

The drawee, however, still has recourse to recover its loss. It may
pass the liability back to the collecting bank which is what the drawee
bank exactly did in this case. It debited the account of Equitable-PCI
Bank for the altered amount of the checks.

The Court here, upheld the view that the acceptor/drawee is liable
only to the extent of the bill prior to alteration.
(Chua v. People, G.R. No. 196853 , [July 13, 2015])

Facts

Chua and private complainant Philip See (See) were long-time friends
and neighbors. On different dates from 1992 until 1993, Chua issued
several postdated PSBank checks of varying amounts to See pursuant to
their rediscounting arrangement at a 3% rate

However, See claimed that when he deposited the checks, they were
dishonored either due to insufficient funds or closed account. Despite
demands, Chua failed to make good the checks. Hence, See filed on
December 23, 1993 a Complaint for violations of BP 22 before the Office
of the City Prosecutor of Quezon City. He attached thereto a demand
letter dated December 10, 1993|||

Issue:

Can a notice of dishonor be issued prior to the issuance of checks? Can a

demand letter that precedes the issuance of checks constitute as
sufficient notice of dishonor?

Ruling:

No, such notice must be issued only after said checks have been
dishonored and within 5 banking days from such notice failed to satisfy
said amount can the prima facie presumption of issuance of an unfunded
check arise. As such gives the accused an opportunity to avert
prosecution and serves to mitigate the harshness of the law in its
application

In other words, if such notice of non-payment/dishonor by the drawee

bank is not sent to the maker or drawer of the bum check, or if there is no
proof as to when such notice was received by the drawer, then the
presumption or prima facie evidence as provided in Section 2 of B.P. Blg.
22 cannot arise, since there would simply be no way of reckoning the
crucial 5-day period.

Checks can only be dishonored after they have been issued and
presented for payment. Before that, dishonor cannot take place. Thus, a
demand letter that precedes the issuance of checks cannot constitute as
sufficient notice of dishonor within the contemplation of BP 22.
 Land Bank vs Kho G.R. No. 205839, (July 27, 2016)

Facts:

On December 28, 2005, Kho opened an account with Land Bank in

order to leverage a business deal with Red Orange;

He purchased Land Bank Manager’s check No. 07410 worth

₱25,000,000.00 payable to Red Orange and dated January 2, 2006;

He also gave Rudy Medel a photocopy of the check that the bank
had given him;

After his visit to the Bank, the deal with Medel and Red Orange did
not push through;

He picked up check No. 07410 from the bank on January 2, 2006,

without informing the bank that the deal did not materialize;

Afterwards, Red Orange presented a spurious copy of check No.

07410 to BPI, Kamuning for payment;

Land Bank cleared the check;

However, Kho never negotiated the actual check. It was in his

possession the whole time. Thus Kho seeks reimbursement from LandBank.

However LandBank contends that Kho is precluded from raising the

defense of forgery because of his failure to notify the LandBank that the
deal did not push through and in giving Medel a Copy of the check.

Issue:
W/N Kho is precluded from setting up the defense of Forgery?

Ruling:

No. A drawer or a depositor of the bank is precluded from

asserting the forgery if the drawee bank can prove his failure to exercise
ordinary care and if this negligence substantially contributed to the
forgery or the perpetration of the fraud. While the act of giving Medel a
Photocopy of the check may have allowed the latter to create a
duplicate, this cannot possibly excuse Land Bank’s failure to recognize the
check itself – not just the signature – but the check itself is fake.

More importantly, Land Bank itself furnished Medel the

photocopy without objecting to the latter’s intention of giving it to E. Kho’s
failure to inform Land Bank that the deal did not push through does not
justify Land Bank’s confirmation and clearing of a fake check
bearing the forged signature of its own officers.

Whether or not the deal pushed through, the check remained in

Kho’s possession. He was entitled to a reasonable expectation that the
banks would not release any funds corresponding to the check.
RCBC vs ODRADA G.R. No. 219037, Oct. 19, 2016

Facts

In April 2002, respondent Noel M. Odrada (Odrada) sold a second

hand Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One Million
Five Hundred Ten Thousand Pesos (Php1,510,000).

Of the total consideration, Six Hundred Ten Thousand Pesos

(Php610,000) was initially paid by Lim and the balance of Nine Hundred
Thousand Pesos (P900,000) was paid in manager’s check issued by RCBC
dated April 12, 2002.

After the issuance of the manager's checks and their turnover to

Odrada but prior to the checks' presentation, Lim notified Odrada in a
letter dated 15 April 2002 that there was an issue regarding
the roadworthiness of the Montero. A meeting was requested with regard
to the matter. However, Odrada did not go to the slated meeting and
instead deposited the manager's checks with International Exchange
Bank (Ibank) on April 16, 2002 and redeposited them on April 19, 2002 but
the checks were dishonored both times apparently upon Lim's instruction
to RCBC. Consequently, Odrada filed a collection suit against Lim and
RCBC in the Regional Trial Court of Makati.

In his Answer, Lim alleged that the cancellation of the manager’s

check was at his instance, upon discovery of the misrepresentations by
Odrada about the Montero's roadworthiness. Lim claimed that the
cancellation was not done ex parte but through a letter dated 15 April
2002. He further alleged that the letter was delivered to Odrada prior to
the presentation of the manager's checks to RCBC.

ISSUE/S: WON drawee bank can still deny payment of a manager’s check
due to the Personal Defense of Lim that a defective Montero was sold to
Lim.

Ruling:

YES. As a general rule, the drawee bank is not liable until it accepts.
Acceptance, therefore, creates a privity of contract between the holder
and the drawee so much so that the latter, once it accepts, becomes
the party primarily liable on the instrument.

A manager’s check makes the bank primarily liable as there is

already acceptance upon issuance of a manager’s check. HOWEVER,
the SC ruled that the issuing bank could validly refuse payment when
the holder is NOT a holder in due course.

In this case, the Court of Appeals gravely erred when it considered

Odrada as a holder in due course.
 To be a holder in due course, the law requires that a party must
have acquired the instrument in good faith and for value. Odrada did not
acquire the instrument in good faith as he sold a defective Montero. He
immediately presented the check for payment upon notice of the
Montero’s defect.

RCBC acted in good faith in following the instructions of Lim. The

records show that Lim notified RCBC of the defective condition of the
Montero before Odrada presented the manager's checks.

Section 58 of the Negotiable Instruments Law provides: "In the hands

of any holder other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. xxx. "Since
Odrada was not a holder in due course, the instrument becomes subject
to personal defenses under the Negotiable Instruments Law. Hence, RCBC
may legally act on a countermand by Lim, the purchaser of the
manager's checks.
(Ubas, Sr. v. Chan, G.R. No. 215910, [February 6, 2017])

This case stemmed from a Complaint for Sum of Money with

Application for Writ of Attachment (Complaint) filed by petitioner against
respondent Wilson Chan (respondent) before the Regional Trial Court of
Catarman, Northern Samar, Branch 19 (RTC)

During trial, petitioner testified that on January 1, 1998, he entered

into a verbal agreement with respondent for the supply of gravel, sand,
and boulders for the Macagtas Dam project. He presented as the only
proof of their business transaction the subject checks issued to him by
respondent and delivered to his office by respondent's worker on different
occasions, but when petitioner presented the subject checks for
encashment, the same were dishonored due to a stop payment order. As
such, respondent was guilty of fraud in incurring the obligation.

For his part, respondent admitted to having issued the subject

checks. However, he claimed that they were not issued to petitioner, but
to Engr. Merelos for purposes of replenishing the project's revolving fund.

Issue: Whether or not the said checks may be used as basis for Petitioner’s
Monetary Claim against respondent?

Ruling:

In a suit for a recovery of sum of money, as here, the plaintiff-

creditor [(petitioner in this case)] has the burden of proof to show that
defendant [(respondent in this case)] had not paid [him] the amount
of the contracted loan.
However, it has also been long established that where the
plaintiff-creditor possesses and submits in evidence an instrument
showing the indebtedness, a presumption that the credit has not been
satisfied arises in [his] favor. Thus, the defendant is, in appropriate
instances, required to overcome the said presumption and present
evidence to prove the fact of payment so that no judgment will be
entered against him." This presumption stems from Section 24 of
the NIL, which provides that:
Section 24. Presumption of Consideration. —
Every negotiable instrument is deemed prima facie to have been
issued for a valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.
As mentioned, petitioner had presented in evidence the three (3)
dishonored checks which were undeniably signed by respondent.
Having failed to overcome such presumption, respondent is thus held
liable.

Besides, Section 16 of the NIL provides that when an instrument is

no longer in the possession of the person who signed it and it is
complete in its terms, "a valid and intentional delivery by him is
presumed until the contrary is proved," as in this case.
(Evangelista v. Screenex, Inc., G.R. No. 211564, [November 20, 2017])

Facts:

Sometime in 1991, [Evangelista] obtained a loan from respondent

Screenex, Inc. which issued two (2) checks to [Evangelista]. There were
also vouchers of Screenex that were signed by the accused
evidencing that he received the 2 checks in acceptance of the loan
granted to him.

As security for the payment of the loan, [Evangelista] gave two (2)
open-dated checks, both pay to the order of Screenex, Inc. From the
time the checks were issued by [Evangelista], they were held in safe
keeping together with the other documents and papers of the
company by Philip Gotuaco, Sr., father-in-law of respondent Alexander
Yu, until the former's death on 19 November 2004.

Before the checks were deposited, there was a personal demand from
the family for [Evangelista] to settle the loan and likewise a demand
letter sent by the family lawyer.

On 25 August 2005, petitioner was charged with violation of Batas

Pambansa (BP) Blg. 22

Issue:

Whether or not Petitioner Evangelista is still liable for the total amount of
the check?

Ruling:

No. It is a settled rule that the creditor's possession of the evidence

of debt is proof that the debt has not been discharged by payment. It is
likewise an established tenet that a negotiable instrument is only a
substitute for money and not money, and the delivery of such an
instrument does not, by itself, operate as payment.

However, payment is deemed effected and the obligation for

which the check was given as conditional payment is treated
discharged, if a period of 10 years or more has elapsed from the date
indicated on the check until the date of encashment or presentment for
payment. The failure to encash the checks within a reasonable time
after issue, or more than 10 years in this instance, not only results in the
checks becoming stale but also in the obligation to pay being deemed
fulfilled by operation of law.

While it is true that the delivery of a check produces the effect of

payment only when it is cashed, pursuant to Art. 1249 of the Civil Code,
the rule is otherwise if the debtor is prejudiced by the creditor's
unreasonable delay in presentment. The acceptance of a check implies
an undertaking of due diligence in presenting it for payment, and if he
from whom it is received sustains loss by want of such diligence, it will be
held to operate as actual payment of the debt or obligation for which it
was given.